An FTB looking to buy a typical first home — priced at £250,000 — with an average 20% deposit would require an annual household income of £60,600 to qualify for a home loan, up £2,400 on a year ago, according to June data from Zoopla.
This means that just over half (54%) of FTBs now need a loan of more than 4.5 times income to afford a home. This climbs to 80% of young buyers in London.
Generational wealth
FTB numbers have remained remarkably strong given that average house prices continue to edge upwards, as well as the high cost of mortgages and living more generally, which makes it extremely difficult to save up for a deposit.
It’s very much the case that most parents believe they’ll have to assist their children in some way to get on the ladder. Rightly or wrongly, that’s simply the point we have got to.
Younger property buyers also have to contend with the drumbeat of rising rents — which makes it harder to save but also pushes them into the property market.
Private UK rents lifted by 8.4% to £1,286 on average in the 12 months to August, according to the latest data from the Office for National Statistics. Although this is down from 8.6% in the 12 months to July, it is almost four times the current rate of inflation.
A tight residential market has led to younger buyers making compromises on the location, size and type of property they are willing to buy. FTBs had had to forego their desired postcodes over the past two years because rates had risen. Specifically, 45% of FTBs said market conditions had led to “significant” compromise on location.
Longer terms
Once FTBs have settled on a property, more of them are looking for longer mortgage terms to bring down the cost of monthly payments.
In June 2024, 22% of loans taken out by FTBs had a term of 35 to 40 years, according to UK Finance data. Just five years ago, the figure was 6%.
The government has a role in assisting FTBs because they are so important for the overall health of the housing market and wider economy.
Longer mortgage terms are inevitable because they bring monthly mortgage payments down and help with affordability. Of course, in the long run, more payments are made so it ends up costing more — but, if that’s the difference between being able to buy now and not, many are prepared to go down this route. The 25-year mortgage term is a thing of the past.
However, more conventional terms, such as a five-year rate, are currently cheaper than a two-year fix.
At the start of the final week of September, the average two-year residential fix was 5.45%, while a comparable five-year rate was 5.12%, according to Moneyfacts.
This means you can get a better rate. You can budget for the next five years based on the certainty of that payment, and with a longer term you’re going to be paying less right at the start of your mortgage when you probably need to the most.
Always seek advice from a professionally qualified independent mortgage adviser or broker.
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For further information please contact Peter Hunt on: 0121 503 0961
www.moneywatchfinance.com
Peter is one of the panel experts for the Grand Designs live TV show and has been recognised in the Times Vouched For guide to the UK’s top rated financial advisers every year since 2019
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